Which principle mandates that land must be recorded at its purchase price regardless of subsequent value increases?

• A. Going concern principle
• B. Historical cost principle
• C. Full disclosure principle
• D. Matching principle

Answer: (B)

The principle that mandates that land must be recorded at its purchase price, regardless of any subsequent increases in value, is the historical cost principle. This principle states that assets should be recorded and reported at their original purchase price or cost, which provides consistency and reliability in financial reporting.

By adhering to the historical cost principle, businesses avoid discrepancies that could arise from market fluctuations, ensuring that financial statements reflect a more stable and objective view of an entity's financial position. This approach also enhances comparability between financial statements over time, as it eliminates the subjective nature of estimating fair market value.

The other principles mentioned do not pertain directly to how land or other assets should be recorded based on their purchase prices. For example, the going concern principle assumes that a company will continue to operate indefinitely, the full disclosure principle emphasizes transparent reporting of all relevant financial information, and the matching principle focuses on aligning expenses with the revenues they help generate within the same accounting period.